Back in the dot-com era, the Wall Street Journal columnist Holman Jenkins wrote that what makes convertibles so fascinating is the way they straddle the gap between the “risk-reward” pricing model used for bonds and the “what-the-heck” pricing model. Many convertible issuers—and many more companies that should issue convertibles but, for reasons best known to themselves, do not—are young, fast-growing companies essentially inventing new industries as they go along. Some of these companies reach a point where, despite the massive uncertainty surrounding their appropriate equity valuations, one can arrive at a fair degree of confidence that the businesses will be around for a while.
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